There may be a new way for lenders to comply with the Home Mortgage Disclosure Act (HMDA) beginning in 2018, but the Consumer Financial Protection Bureau (CFPB) just let the industry know the penalties for noncompliance today and beyond.
The CFPB reached a consent order with Nationstar Mortgage LLC to settle allegations of HMDA violations from 2012-2014, violations of the previous HMDA rule that had been overseen by the Federal Reserve.
Avoid HMDA compliance errors: Download our subscriber-exclusive Getting Ready for HMDA special report.
The CFPB imposed a $1.75 million civil penalty for noncompliance over the three-year period and will require Nationstar to add an independent audit team to monitor the company’s HMDA compliance and its compliance with the CFPB’s consent order. It is the largest civil penalty issued by the CFPB for HMDA violations, with the bureau citing the company’s “substantial magnitude of its errors, and its history of previous violations” as reasons for the penalty.
“Financial institutions that violate the law repeatedly and substantially are not making serious enough efforts to report accurate information,” CFPB Director Richard Cordray said in a news release. “Today we are sending a strong reminder that HMDA serves important purposes for many stakeholders in the mortgage market, and those required to report this information must make more careful efforts to follow the law.”
According to 2014 data, the CFPB said, Nationstar was the ninth-largest HMDA reporter by total mortgage originations, the sixth largest by applications received, and the 13th largest by money lent. From 2010 to 2014, Nationstar’s number of HMDA mortgage loans increased by nearly 900 percent.
The CFPB’s enforcement action appears to stem from a consent order between Nationstar and the Massachusetts Division of Banks in November 2011. The state cited Nationstar for HMDA compliance errors, including failure to ensure accurate reporting. The state’s consent order was dismissed Dec. 24, 2013.
The CFPB began to review Nationstar’s HMDA compliance in April 2015, looking back at 2012, 2013 and 2014. The consent order states the bureau found Nationstar to have a sample rate of 13 percent in 2013 – higher than the resubmission threshold of 10 percent then set by the Federal Reserve – an error rate of 33 percent in 2013, and an error rate of 21 percent in 2014, when the CFPB’s resubmission threshold of 4 percent had taken effect.
“These sample error rates indicate the presence of large numbers of errors in the HMDA LAR (Loan/Application Register) that exceed the bureau’s applicable resubmission thresholds,” the consent order states.
The problem, the bureau said, was that the steps Nationstar took to become compliant with HMDA regulations following the Massachusetts action were “deficient.” Specifically, it said the lender:
- Did not maintain detailed and centralized HMDA data collection and validation procedures;
- Did not clearly and consistently define, with specificity, employee roles and responsibilities for HMDA data collection and reporting;
- Did not perform formal compliance tests, audits or transactions tests of data;
- Allowed inconsistent data definitions among different lines of business, which resulted in data inconsistencies;
- Had inadequate ongoing monitoring of vendors related to HMDA; and
- Did not implement adequate compliance management systems for deficiencies.
The violations cited occurred under the previous HDMA rule, which the CFPB amended in 2015 and which takes effect beginning Jan. 1, 2018.
In addition to the civil money penalty – there was no consumer redress in the action since the reporting violations did not directly affect consumers – Nationstar must submit a comprehensive compliance plan within 60 days. Included in the plan, Nationstar must create an internal audit department, independent from the company’s compliance and business units, which can ensure the company’s compliance with HMDA and which is “adequately staffed with qualified personnel.” The audit department must assess the company’s compliance at least annually and report within 10 days of each assessment the findings to the Nationstar board of directors and the CFPB regional director.
In addition, the compliance plan, which has to be designed to provide compliance with the new HMDA rule, must include:
- Detailed steps for addressing actions required in the consent order;
- Detailed steps to develop, implement, and maintain improvements to policies, procedures and internal controls – including quarterly reviews or HMD reporting requirements;
- Detailed steps to develop, implement and maintain any necessary improvements to Nationstar’s program to regularly test HMDA data integrity and institute prompt corrective action;
- Detailed steps to develop, implement and maintain improvements to operating policies and training procedures; and
- Specific timeframes and deadlines for implementation of steps in the compliance plan.
The CFPB stated in its press release that it has conducted HMDA reviews at “dozens of bank and nonbank mortgage lenders,” and found that many have adequate compliance systems and produce HMDA data with few errors.
Since the CFPB’s examination, Nationstar has been taking further steps to improve its HMDA compliance management system and increase the accuracy of its HMDA reporting, the release stated.